Law Firm Fails to Property Advise Corporate Client in Private Placement Funding

Ardemore Corporation f/k/a New Day Pharmacy Corporation v. Harwell, Howard, Hyne Gabbert & Manner, P.C., Case No. 12C-627 (Davidson Co. Cir, Tennessee,  2011) 

In this legal malpractice case, we represented an institutional pharmacy company against a large prominent Nashville health care law firm known as “H3GM.”   H3GM incorporated New Day as a legal entity and, thereafter, basically served as its “outside general counsel.” In this role, it assisted New Day in raising capital, creating offering circulars, and providing guidance in how to lawfully solicit and secure private investors.  Unfortunately,  however, H3GM failed to advise the company that it should not allow physician investors to invest because of the potential for these physicians to refer business to the company in violation of a federal anti-self-referral statute common referred to as the Stark Act.  This omission came to light during the due diligence phase of a private placement round of financing.  New Day lost out on the opportunity to obtain a much needed $5.5 M cash investment and was forced into bankruptcy.   H3GM denied liability and aggressively defended the case.  After approximately two years of hard fought litigation against a prominent Nashville defense team, the case was settled and the defendant insisted that the amount be kept confidential.